Benefits in Kind (BIKs) are non-cash benefits provided to employees, which can be taxable depending on the type of benefit. This guide covers key areas relevant to UK employers, including Private Medical Insurance (PMI), Health Cash Plans, Life Assurance, Income Protection, Critical Illness Protection, Flexible Allowances, Employee Gifting, Salary Sacrifice Schemes, and P11D vs Payroll Reporting.
Private Medical Insurance (PMI) and Dependants
Overview:
PMI provided to employees is a taxable benefit.
Cover for dependants is also taxable unless the employee pays the full cost via the insurer or payroll
Tax Implications:
Employers must report PMI on a P11D form.
Class 1A National Insurance Contributions (NICs) are payable by the employer.
Key Points:
The taxable value is usually the premium paid by the employer.
Consider communicating the tax implications to employees clearly.
Health Cash Plans
Overview:
Health Cash Plans reimburse employees for everyday health expenses (e.g., dental, optical).
Tax Implications:
Treated similarly to PMI; taxable unless structured under an approved salary sacrifice arrangement.
Reportable on P11D with Class 1A NICs due.
Life Assurance
Overview:
Group Life Assurance policies (e.g., Death in Service) are generally not a taxable benefit if part of a registered pension scheme.
Tax Implications:
No P11D reporting required if within pension scheme limits.
If outside a pension scheme, may be reportable.
Income Protection
Overview:
Provides income to employees unable to work due to illness or injury.
Tax Implications:
Premiums paid by the employer are usually not taxable as a BIK.
However, payments received by employees under the policy may be subject to income tax.
Critical Illness Protection
Overview:
Pays a lump sum on diagnosis of specified critical illnesses.
Tax Implications:
Employer-paid premiums are generally taxable as a BIK.
Report on P11D with Class 1A NICs due.
Flexible Allowances
Wellbeing Allowances
Taxable unless used for specific, exempt items (e.g., on-site gyms).
Cash payments are treated as salary and subject to PAYE and NICs.
Learning & Development Allowances
Exempt if the training is work-related.
Non-work-related training may be taxable.
Work From Home Allowances
Tax-free up to £26 per month without evidence of costs.
Higher amounts require proof of additional expenses.
Employee Gifting
Overview:
Gifts can be taxable depending on value and nature.
Trivial Benefits Exemption:
Non-cash gifts under £50, not part of contractual obligations or performance-related, are tax-free.
Larger Gifts:
Subject to tax and NICs, reported on P11D or through a PAYE Settlement Agreement (PSA).
Salary Sacrifice Schemes
Overview:
Employees give up part of their salary for non-cash benefits.
Tax Implications:
Many benefits are taxed on the higher of the salary given up or the benefit's cash value.
Exceptions include pensions, cycle-to-work schemes, and ultra-low emission cars.
Reporting:
Ensure proper documentation and P11D reporting where applicable.
P11D Reporting vs Payroll Reporting
Overview:
Employers must report taxable benefits either through P11D forms or via payroll.
P11D Reporting:
Traditionally used to report BIKs at the end of the tax year.
Employers submit a P11D for each employee receiving taxable benefits and a P11D(b) for Class 1A NICs.
Payroll Reporting:
Increasingly common, with HMRC encouraging payroll reporting of BIKs.
Simplifies tax collection as it's processed in real-time through PAYE.
Key Differences:
P11D: Annual submission, separate from payroll processing.
Payroll Reporting: Integrated with monthly payroll, reducing year-end admin.
Future Changes:
HMRC has announced plans to phase out P11D forms, making payroll reporting mandatory for most benefits as of 6th April 2026.
Navigating BIK tax can be complex. Ensure accurate reporting through P11Ds or payroll, understand Class 1A NIC obligations, and communicate clearly with employees about potential tax impacts. Consulting with a tax advisor is advised when implementing new benefits for your team.